Working Paper No. 13-03
Who Exports Better Quality Products to Smaller or More Distant Markets?
This paper examines the role of across-firm differences in product quality and firms' competitiveness in determining the spatial patterns of within-product export unit values across destinations. Using product-level export data, I show that the average export unit value of a product shipped from the U.S. or Korea increases with distance and decreases with destination market's size. However, within-product average unit values for products exported from China and India decrease with distance and increase with market size. To interpret these spatial patterns of unit values across exporting countries, I develop a model of quality heterogeneity in which firms differ in their workers' skill level and higher-skilled workers show greater productivity in performing tasks that improve product quality. The Model predicts that in relatively skill-abundant countries, exporting firms specialize in high-quality products using relatively cheap skilled labor, whereas, in relatively skill-scarce countries, firms that produce lower-quality products are more competitive.
JEL classification: F10, F12
Keywords: Average f.o.b. Export Unit Values, Quality Differentiation, Monopolistic Competition